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Today, DM has assets of $816 million, more than 97,000 customers, and an ambitious plan to grow even further and faster that goes to its members for a vote this month.

While DM is the largest local credit union, it's not the only one that's growing.

Credit unions headquartered in Southern Arizona saw their membership grow by 22 percent from 2000 to 2005, according to the National Credit Union Association, a federal regulatory agency. Southern Arizona credit unions had more than 293,000 members in 2005.

Statewide, about 1.4 million residents belonged to credit unions — about 28 percent of the population and a half-million more than they had in 1995.

The credit union industry insists that bigger is better for customers seeking the best rates and lowest fees. However, the rival banking industry disagrees.

Tanya Wheeless, president of the Arizona Bankers Association, said the largest credit unions look like banks, and are looking for new ways to compete with banks, such as loans to businesses.

As credit unions aggressively advertise, build new branches or battle for new business, Wheeless said, they may be spending to grow, instead of passing along savings to existing members.

Credit unions — by definition nonprofit organizations — counter that expansion, combined with their tax-free status, results in the best possible deals.

Robert D. Ramirez, president and CEO of DM Federal, said the bigger his credit union becomes, the better rates customers will see.

"It's a business, and we run it as a business. Every business has to have a return," Ramirez said. "That profit is returned back to members," in terms of better deals, he said.

Jesse Cortez, 59, said he's been a Pima Federal Credit Union customer for about three years. Cortez said he sees credit unions and banks as equal, and he sees no reason to switch to a bank.

"I like their service," Cortez said of Pima Federal. "When you're happy, you have to stick with them."

Different approaches

In his 39 years working with credit unions, Jim Knoff said he's seen credit unions divide into two categories.

"Some still try to stick with the older philosophy, and some are expanding and competing with banks," said Knoff, president of Pima Federal Credit Union.

Three local credit unions illustrate Knoff's point:

● DM Federal: Southern Arizona's largest credit union estimates it has 200,000 potential customers, but wants to increase that figure to 1.2 million.

Federal regulations allow people to join DM based upon whom they work for — a long list ranging from Wal-Mart to the University of Arizona, or if they live in designated areas of the Northwest Side.

That could change if members approve a switch from a federal charter to a state charter. The change would allow everyone in Pima and Pinal counties to join, along with some Maricopa county residents, according to a March 24 letter to credit union members.

● Pima Federal: With more than 41,000 members, it has opted to grow more slowly than some counterparts.

Founded for county employees, the credit union added about 5,000 members during the past five years.

Pima Federal decided against expanding into Phoenix because it wasn't willing to risk sacrificing its level of customer service, Knoff said.

"Our idea was let's stay in Tucson, let's just concentrate on this market, let's concentrate on consumer lending," he said. "We're not looking for great growth, but for steady growth."

Pima Federal uses less mass media advertising than some of its peers, Knoff said, preferring to market to customers at charity fund-raisers and other community events. "We keep it pretty basic," Knoff said.

● Hughes Federal: Growth has accompanied an increased focus on aiding low-income customers.

Hughes Federal's membership is about 46,000, an increase of 35 percent from 34,000 five years ago.

Almost half of its members are affiliated with Raytheon Missile Systems or its predecessor, Hughes Aircraft. In 2001, the credit union obtained a federal designation to serve unmet financial needs in Tucson. In exchange, the federal government let Hughes extend membership to anyone in Tucson.

The credit union designed products for people trying to build better credit, recover from financial mistakes, or obtain loans for the first time. Its "credit builder loans" help members with low credit scores who need to show they can repay a loan in order to raise credit ratings.

Hughes Federal doesn't intend to compete with banks, said Kellie Terhune Neely, vice president of marketing.

"We think credit unions are just a viable alternative," she said. "It provides a choice and keeps things competitive."

Growth hasn't changed the basic structure of credit unions, said Pat Bodnar, senior vice president of the Arizona Credit Union System, the trade association for credit unions in Arizona.

But customers want more services, she said, and some credit unions have added everything from online banking to mortgages.

"As you grow up, as more technology comes in, you can't stay stagnant," Bodnar said. "If you want to exist, you have to offer more."

However, the growth of the largest credit unions has drawn criticism from banks, which complain that some credit unions have "morphed" to resemble community banks, using their tax-exempt status to create an unfair competitive advantage.

The American Bankers Association estimated in 2004 that community banks' market share had been cut in half during the previous 20 years, with credit unions' growth a major contributor.

Michael Hannley, president and CEO of the Bank of Tucson, said large credit unions have grown at the expense of community banks like his. Bank of Tucson paid $2 million in federal taxes last year, while credit unions paid none.

"When it was established in the '30s, it was right," Hannley said. "Here in 2006, it's not."

Competition intensified in the past few years, he said, as large credit unions compete more for loans to businesses.

To a community bank, Hannley said, that's "stealing our bread and butter."

DM Federal Credit Union's CEO said that his job is to identify what DM's members want, not to focus on competition with banks. "I'm not involved in the banking industry," Ramirez said. "I'm just focused on what we're doing."